Blackstone's AirTrunk Deal: A $16B Bet on Data Centers and AI

In a significant move within the data center industry, a Blackstone-led consortium has agreed to acquire AirTrunk, an Australian data center operator, for A$24 billion ($16.1 billion). This transaction, announced on September 4, 2024, marks Blackstone's largest investment in the Asia-Pacific region to date.

AirTrunk, which provides data center services to major AI developers like Microsoft and Amazon, has seen its valuation skyrocket since 2020. The current deal values the company at eight times its 2020 valuation, when Macquarie and Canada's Public Sector Pension Investment Board acquired an 88% stake for A$3 billion.

The rapid growth in AirTrunk's valuation reflects the increasing demand for data center infrastructure, particularly in the Asia-Pacific region. This surge is largely driven by the expansion of artificial intelligence and cloud computing services, which require substantial computing power and data storage capabilities.

However, the valuation methods used in this deal have raised some eyebrows in the financial community. The reported enterprise value of 21 times EBITDA is based on run-rate EBITDA, which includes future client commitments. This approach has been criticized by some as "fake EBITDA," drawing parallels to the optimistic financial projections seen during the SPAC boom of the early 2020s.

Blackstone defends its valuation, citing its extensive experience in the data center sector. The firm manages a $55 billion portfolio of data centers and formed a joint venture with Digital Realty Trust in 2023. This expertise arguably positions Blackstone well to assess the potential of AirTrunk and the broader data center market.

The deal's enterprise value calculation includes not only the standard components of equity and net debt but also "capital expenditure for committed projects." This inclusion helps justify the high valuation but deviates from traditional enterprise value calculations.

While the growth potential in the AI and data center sectors is undeniable, the use of non-standard financial metrics raises questions about how to accurately value rapidly growing companies in hot sectors. Using more conventional metrics, such as expected 2024 earnings, would result in a purchase multiple of 87 times EBITDA – a figure that might be challenging for investors to accept.

"The AirTrunk acquisition highlights the challenges in valuing high-growth tech infrastructure companies. While the potential is clear, the use of non-standard metrics reminds us of the need for caution and transparency in deal valuations."

As data centers continue to play a crucial role in the digital economy, deals like the AirTrunk acquisition underscore the sector's importance. However, they also highlight the need for careful scrutiny of valuation methods in fast-growing industries. The success of this investment will likely depend on AirTrunk's ability to meet the increasing demand for AI and cloud computing infrastructure in the Asia-Pacific region.